With inflation running at a 40-year high and interest rates subsequently set to continue climbing, the real estate market is under significant pressure. Tenants willing and able to stretch themselves are jumping ship and buying property before it becomes financially impossible; meanwhile, many renters are struggling in the face of the ongoing cost-of-living crisis and turning to their landlords for some relief.
So where does this leave landlords, and should they be looking at new tactics?
Many tenants receiving landlord support
Across the UK, rental growth reached 12.3% in July, while London rents rose by 18%. Simultaneously, wages fell by 3% in June - a disparity clearly highlighting the current economic challenges faced by landlords and their tenants.
According to research conducted by Shawbrook Bank, one in 12 tenants have recently reported that their landlord has reduced their rent to assist them in weathering the current cost-of-living crisis. This assistance comes as soaring energy bills continue to put extreme pressure on tenant budgets - a further 5%
report that their landlords have frozen their rent altogether as a temporary measure.
The cost of replacing tenants and haemorrhaging income during void periods is, in many cases, much more costly to landlords than the option of providing temporary financial support to good tenants. Still, is there more that l
Diversifying with mixed-use developments
Some landlords are turning to mixed-use developments as a means of diversifying their portfolios and bolstering their financial security.
Mixed-use developments are often overlooked as a leading investment option, yet they offer the potential for high returns and excellent growth in value over time.
What is a mixed-use development?
As defined by HMRC, a mixed-use property is ‘one that has both residential and non-residential elements.’
When a property is designed to accommodate multiple uses, such as a residential flat connected to an office space or shop, it is defined as mixed-use.
There are many advantages to investing in a mixed-use property. For landlords looking to diversify, mixed-use properties often return high rental values across multiple streams, and low vacancy rates.
One recent high-profile example of mixed-use investment is M&G Real Estate announcing the commencement of work on the 86,810 sq ft ‘Fitzrovia’ - a mixed-use development on Tottenham Court Road.
At a cost of £200 million, the development will create 9,505 sq ft of residential, 65,885 sq ft of office, and 11,420 sq ft of retail space.
Head of M&G Real Estates’s Portfolio Assess Management, John Duxbury, highlighted the firm’s mixed-use developments strategy, saying, ‘'Our investment in The Fitzrovia is a continuation of our strategy to develop assets of scale in prime locations … we are currently doing this at our ongoing mixed-use developments at 40 Leadenhall in the City of London and at Haymarket in Edinburgh."
Advice for landlords
One of the best ways a landlord can maximise their income is by attracting and retaining good tenants, and thus avoiding void periods. Some tips to achieve this include:
- Consider offering temporary assistance - the cost of providing some temporary financial help for struggling tenants may be well worth it to avoid the expense of replacing them
- Go green - the more eco-friendly the property, the lower the bills. Energy-efficient rental properties are highly desirable, and existing tenants may also be more likely to stay on
- Modernise - sometimes, it’s the small things that become the last straw - if your tenant is already struggling with rent and simultaneously dealing with patchy internet or appliances on the blink, they will be more inclined to jump ship - give them reasons to stay
- Be a great landlord - sounds obvious, but again, it can be the (seemingly) little things that make all the difference. So, be approachable, friendly, and accommodating, handle issues promptly and never retaliate against a tenant exercising their rights
As well as optimising the rentals you offer, ensure that you think ahead and budget for void periods, and consider diversifying your portfolio.
If you are considering investing further or engaging a property management team to facilitate growth, get in touch with us here at Portico on 0204 5793 011.
Our friendly team of property experts are ready to assist you with all your property investment needs. You can also grab an instant property valuation here, and research London’s rental yields here.